Oxstones Investment Club™By Matthew Goldstein, Reuters,
Oaktree Capital Group is leading an effort to put up for sale roughly 500 fully-leased homes, an indication some early investors are looking to cash-out on the recovery in U.S. housing prices, according to sources familiar with the market.
Oaktree, which manages about $76 billion, and its partner Carrington Mortgage Services are entertaining bids for the portfolio of fully-leased homes as they seek to exit from the buy-to-rent trade that has become popular the past two years with hedge funds and private equity firms.
The homes, mainly located in several western U.S. states, is being shopped to other large investors in foreclosed homes, said three sources, who asked for anonymity because they were not authorized to discuss the matter.
Oaktree, which specializes in distressed investing, and Carrington had initially planned on converting their portfolio into a real estate investment trust. But investors have now decided to simply exit the trade. Their asking price for the portfolio could not be learned.
Earlier this year, Reuters first reported that Oaktree, after partnering with Carrington in early 2012, was souring on the buy-to-rent trade after seeing returns on rents from single-family homes begin to compress. Oaktree, which had agreed to spend up to $450 million on building a portfolio, told Carrington this spring that it did not want to continue buying additional foreclosed homes.{nL2N0DN0X7}
A year ago, hedge fund Och Ziff Capital Management put its book of 300 homes in Northern California up for sale, a process it has just about completed.
In choosing to sell now, Oaktree and Carrington look to profit from the recovery in home prices. Nationally, the prices for single-family homes are up about 12 percent compared to a year ago, according to the S&P/Case-Shiller composite index.
Prices are up more in markets that investors have targeted. In Las Vegas, for instance, homes are selling for 25 percent more than they did a year ago.
People familiar with Oaktree and Carrington said the two firms remain interested in working together to invest in nonperforming home loans, a business that Carrington specializes in.
There has been a transformation in the U.S. buy-to-rent trade over the past year, which initially began with a number of small hedge fund and speculators buying the wreckage of the housing bust in southern California, Florida, Arizona and Nevada. But single-family homes have emerged as new asset class for Wall Street firms.
A year ago, private equity firm Blackstone Group, and a handful of large Wall Street-backed firms began spending billions in a race to acquire properties in order to get ahead of an escalation in homes prices.
Fueled in part by the Federal Reserve’s policies, which made it easy to borrow money to buy distressed real estate, the buying spree led investors to become more aggressive in seeking higher-yielding assets.
To date, Blackstone is the single-largest buyer of foreclosed homes, owning about 32,000 in a dozen states. Other big acquirers are: American Homes for Rent, Colony Capital and Silver Bay Realty Trust Corp.
American Homes, Silver Bay and a few other institutional buyers of foreclosed homes have tried to monetize their investment by converting their home portfolios into publicly traded real estate investment trust.
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